New Homes Smaller, but Not in Price

New-home buyers are downsizing their square footage to better suit their lifestyles, but are not necessarily paying lower prices for their new-construction homes, say some homebuilders. In several cases, new-home buyers are probably spending more per square foot in order to be cost-efficient on heating and cooling, while opting for upgrades, such as granite countertops and stainless steel appliances.

"Building right now is a little more cost-effective than it was in the boom," says David R. Werschay, CEO of Werschay Homes in St. Cloud, Minn. who sees a different attitude among new-home buyers. "Customers say, 'I want the house to function for my lifestyle, I don't need the space.' Back in the day, when husband and wife both wanted an office, you just made two offices. Now we're seeing, 'Let's make one office and design it so both of us can work out of it,'" he says.
Some 95 percent of homebuilders say that they are building smaller homes to accommodate buyers, according to a 2010 National Association of Home Builders survey, which found that the average square footage of new construction homes has dropped over the last three years. The median floor area of new homes started in 2010 is just above 2,100 square feet, down from 2,309 square feet in the first quarter of 2007.

The least desired features in homes these days, according to the survey, include large spaces such as a media room and two-story atrium, while at the top of buyer's wish lists were a well-designed laundry room and a walk-in closet in the master bedroom.

Baby Boomers and the younger Echo Boomers are driving the new-home trend, say experts.

Willis Construction Inc., a custom home-building company in the Kansas City area, has firsthand experience in the evolution to smaller homes in America. While historically its customers have demanded extremely large homes (4,000 to 6,000 square feet), owners Bob and Patrick Willis (pictured left) have seen a new trend in recent years with its clientele now requesting smaller homes of 2,000 to 3,500 square feet). "Customers want every square inch of the house usable [and] are cutting rooms out of the house that are rarely used," says Patrick Willis.

"Buyers are cautious, and are especially anxious to contain monthly energy costs – hence opting for smaller homes," Stephen Melman, NAHB's director of economic services and housing policy told HousingWatch.

Another contributing factor, he says, is that "a higher share of new-home buyers are first-time buyers, even after the expiration of the first-time buyer tax credit. Also, Baby Boomers no longer need large homes, and are choosing well- designed homes with a smaller footprint."

Court Airhart of Airhart Construction, based in West Chicago, Ill., agrees that Baby Boomers reaching retirement age are a big contributor to this trend, but he says so are "Echo Boomers" ages 20 to 32 years old, who have grown up in the bigger homes and realize that they don't need all that space, plus they are buying homes earlier than their parents and grandparents did.

"They have less savings and not as high of earnings [as older generations], but they want to buy," Airhart told HousingWatch. "Interest rates are at all-time lows and homes have never been more affordable than they are today."

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To accommodate that first-time homebuyer, as well as downsizing Baby Boomers, Airhart is building 1,300-square-foot, one-story, two bedroom homes with all the bells and whistles -- such as built-in bookshelves on either side of the fireplace. Historically, when you had a smaller house you had formica countertops, he said, and with bigger homes you had wasted space with a big island, a breakfast nook and a formal dining room.

"Culturally, people are saying: Do I need that space or do I want nice amenities and all-oak floors," he says. "So people are shrinking the square footage and maybe still spending the same amount."

Buyers are realizing that maybe they don't need that giant tub, separate shower and a wet bar in the bathroom. "So instead we are taking this space where the tub used to be and melding it into a larger shower with glass tile."

Werschay says, "We're seeing a lot of multiple purpose rooms or flex rooms. Before, maybe we'd build a den and a spare bedroom."

Buyers who are opting for more style are willing to accept slightly less space to enjoy better details, says Ken Krivanec, president of Quadrant Homes in Bellevue, Wash.

Like most homebuilders, Quadrant, which is Washington state's largest homebuilder and a unit of forest-products giant Weyerhaeuser Co., has struggled during the housing slump. Last year it sold just 579 homes, about half as many as the year before, and it has cut its work force by 19 percent, to 132 people, reported the Puget Sound Business Journal.

Krivanec said that starting in January, Quadrant will highlight its "Built Your Way" program, which gives buyers thousands of feature choices, from siding to appliances to paint color on its "Revolution" homes, which are upgraded with fireplaces, granite countertops and stainless-steel appliances.

For more on new-construction homes and related topics see these AOL Real Estate guides.

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